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The quota system of IMF will be reworked in such a fashion that China, India and a few other growing economies will have more say
Converting G-20 into the most crucial economic meet in the world contains more than symbolic importance
The Pittsburgh Summit of global players from the G20 nations had paved way for higher expectations. Initial responses from India and foreign nations after its culmination on September 26 indicate that G20 gathering has been successful in meeting many of those expectations.
In regard to the financial decision making, the most praiseworthy step that was taken at the summit was to help it gain a central position in the world.
In the statement made by US, it was said, “The group’s leaders reached a historic agreement to put the G20 at the centre of their efforts to work together to build a durable recovery.” G20 has been assigned a central position mainly to tackle crisis situation and thereby recovery. This is however going to be a permanent provision.
IMF quota recast
This view has been considered in relation to other crucial reform provisions suggested and agreed upon at the G20 summit. The quota system of IMF that ascertains members’ voting rights will be remodeled in such a fashion that India, China and a few more growing economies will find more say in the functioning of global institutions. According to prevalent provision, the rich nations enjoy a large share of voting rights in the global forum. However, the recast will do away with this imbalance giving almost 50% share to the growing nations. Currently, these nations enjoy 43% share and talks are on to give another 5% voting rights to them.
Peer reviews
The other significant proposal that would make the global organization more comprehensive is the peer review of the performance of all the member nations including developed and developing ones in the area of economy under the guidance of IMF. The peer review will help other nations to run a check on the economic policies of any other nation, find out loopholes and accordingly assist in preventing a crisis situation. Growing nations comprising India have already been brought under the realm of reviews.
This new proposal lends this global governance body a more democratic character. It also recognizes the tendency of the financial markets in the rich nations to transfer their self-created problems to other nations of the world. IMF would decide on the surveillance procedure and find out about the destructive measures if being followed anywhere.
Stricter economic norms
Similar views have been shared on the introduction of the new models for the economic sector. It has been pointed out that it is the high executive compensation provision supporting banks to take “excessive risk” in the US financial industry that is the root cause of the crisis situation. The member nations of G20 have given their approval for new global standards that will be built by the Financial Stability Board. This board will be responsible for devising remuneration packages, more specifically for dishing out bank bonuses.
Deferred bonuses
According to new rules, banks need to develop their capital, if required, by restricting dividend payouts. Considerable part of the bonuses of the senior bank executives will be treated as the deferred compensation. For the top brasses, the portion may scale up to over 60%. The main objective behind this is to connect the present compensations to future performance. Measures would be introduced to “claw back” payments of the bonus, if organization stumbles.
The G20 also promised to back a challenging format for financial regulatory reforms. This comprises stricter requirements for capital and fresh rules for liquidity to be conceded towards the end of coming year and introduced by end 2012. Decision has been taken to make the Basle II prudential norms for banks effective by 2011 and proceed for inclusion in financial reporting standards.
Advantage for Asia
The question is whether G20 would be able to handle the issues of global governance any better than G8? The G20 makes for 85% of global income and hence undoubtedly represents global economy better. This is beyond a symbolic gain for India and some of the other growing nations. It has been said that it would be a sensible decision to incorporate nations like China in the elite list, as it plays significant role in the recovery.
India and China along with few other nations performed better than rich nations, generating positive GDP growth rates in such times when rest of the world was experiencing declines. These are the nations that are ruling the scenario of economic recovery. The five Asian members of G20 are India, China, South Korea, Japan, and Indonesia and Australia. G8 featured only one that is Japan.
The new arrangement was heavily praised by the global leaders. Gordon Brown, the British Prime Minister, holds the newly empowered G20 will offer “more chance of delivering results than anything since the Second World War.” According to US government, the massive changes in the global economy have not always been showed in the global structure of financial co-operation. Hence, it’s the time for G20.
On the other hand, there is a fear that the G20 may prove to be ineffective, a charge that has been brought against G8 many times. Nations like Argentina, Turkey, the Netherlands and Spain don’t have homogeneity. The Netherlands and Spain enjoy the status of observers. According to observer nations, actual work can be handled with the help of sub-committees.
The G20 can be said to be the representative of the world economy. However, as Ban Ki-Moon, the U.N. Secretary General, said 85% of the nations of the world were not represented at the Pittsburgh meet. The Hindu
October 5, 2009
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